Yesterday I went to a Pure Michigan tax seminar put on by the Michigan Chapter of the National Association of Tax Preparers. Aside from getting an update on the relatively unaltered 2011 Michigan tax return, I was also given the inside scoop on the changes headed our way in 2012. Because the Michigan Treasury is leaving the general education of the changes up to tax practioners and pension companies, who will also be largely impacted by the changes, I thought I’d post a blog or two on the subject.

What are some of the changes headed our way in 2012? As you probably already know, Gov. Snyder changed the tax landscape in Michigan drastically by eliminating the Michigan Business Tax or MBT. This tax was hindering an already cripple economy by hurting existing business and dissuading new businesses from coming here.

In place of the MBT, revenue will come from increased tax on income. This increase will not come by way of a tax rate increase, but rather by less deductions and credits.

Michigan Taxpayers will no longer be able to deduct:

  • Political Contributions
  • $600 exemption for children under age 19
  • IRA distributions used to pay higher education
  • Charitable contributions made from a qualified retirement plan
  • Proceeds won from MI bingo, raffle, or charity games
  • Net Income from gas and oil royalty interest
The following credits are completely eliminated:
  • City Tax Credit
  • Historical Preservation Credit
  • Public Contribution Credit
  • Community Foundation Credit
  • Homeless/Food Bank Credit
  • College Tuition Credit
  • Vehicle Donation Credit
  • Stillbirth Credit
  • Adoption Credit
The Earned Income Tax Credit is reduced to 6% of the Federal Credit from 20%  in 2011.
In addition to these changes, taxpayers should get less Homestead Property Tax Credits and Home Heating Credits because  Household Resources (formerly Household Income) will most likely increase.
In summary, expect to pay more in income tax because of reduced deduction and eliminated or reduced credits. If you are retired and collecting a pension, you’ll want to read my next article as I describe Michigan Tax Changes for Retirees.
Rich Feight, CFP
Rich Feight, CFP

Hi, I'm Rich Feight I'm a fee-only Certified Financial Planner, successful business owner, and self-made millionaire that knows how to beat the system and become wealthy. I have a lot of clients that have done it too. I'm also pretty good at finding that ever-elusive work/life balance so many of us strive for. Lucky for you I have an abundant mindset and give all my knowledge away on my blog. So if you want to know what it takes to become a millionaire, follow me.

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